Banks are facing off in business lending as demand for residential mortgages cools.
The Veda Commercial Credit Demand Index has shown strong growth for business credit, with inquiries increasing 8.8% in the first quarter compared to the same period last year. Veda head of commercial risk Moses Samaha said the sector represented a growth opportunity for lenders in an environment where many consumers have been hesitant to take on new debt.
"As consumer mortgage market volume and profitability erodes due to growth in consumer refinancing, it’s possible that banks are seeing business lending as the new battleground for profitable business expansion and these results clearly indicate a trend in this area," he said.
The results did, however, highlight Australia's two-speed economy. Growth in business credit demand was largely driven by mining states, while states such as Victoria, South Australia and Tasmania lagged behind.
“It’s no surprise that business credit applications have been stronger in the resource-sector heavy states. Overall there has been an increase in all states, which is a positive indicator but highlights that the two-speed economy continues to accelerate the disparity between these state economies," Samaha said.
Samaha said SMEs with five to 50 employees drove much of the demand for credit. Though SMEs of this size account for only 12% of the population, Samaha said they drove 49% of credit enquiries.
Business loans and trade credit accounted for the largest rise in credit enquiries. Samaha said asset finance remained subdued. While demand for asset finance rose in the Northern Territory, Queensland and WA, it fell in the non-mining states.
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